We all want to make wise investments when it comes to buying a ranch property. When you are ready to start your search, here are five of the most valuable features of land to consider in your selection.
1. Water & Mineral Rights
When looking at buying ranch or farm land, water rights are increasingly one of the most crucial factors if not the most important factor in the purchase. Kelly Bennett of B3 explains it in greater detail – “Water is a critical component to ranch operations, whether it provides value through agriculture or recreation. As a result, it is incredibly important to understand both the water rights that trade with ranch properties and other water rights that share a common source. Especially in the West, nearly all water has been claimed for use, so while you may see a stream meandering through a property, you are not necessarily legally permitted to use the water in it, even for watering stock. An understanding of basic characteristics of water rights, like where they are diverted and used, how they have historically been used, and how old they are is therefore absolutely essential when purchasing a ranch property.” Water rights in many states can be sold, leased and encumbered separately, and they are not always owned by the person owning the land. “First in time first in right” applies, meaning the older the water right, the more valuable and reliable the right. After doing your due diligence, the water rights can therefore be one of the most valuable assets of your ranch.
One of the most common questions we get about any of our listings is if mineral rights are included in the sale of the property. As most ranch buyers know, mineral rights, just like water rights, can be owned separately, and a landowner can own the surface estate but not the minerals beneath it. Including minerals in the purchase can add value to the land especially if there is mineral potential and at the minimum provide security and reduce impacts in the future. Colorado’s mineral rights cover a wide range of hydrocarbon products including crude oil, natural gas, gold, silver, and coal. In Wyoming, mineral rights contribute more than $2.2 billion dollars in the form of taxes to the state and local economies. Wyoming is seventh in oil production and second in gas production in the United States.
2. Location
This factor is important in everyday real estate transactions, but is an entirely different issue when evaluating legacy ranches or sporting properties. Adjacency to public land, such as a National Forest, National Park, Bureau of Land Management land, state land or wilderness areas, adds incredible value to a ranch. Other considerations include views, privacy and access issues. Are you near a county road? Can you access the property year-round? Do you have deeded or permitted access?
In addition, land that has conveniences nearby such as a grocery store, restaurants, medical services or an airport are taken into account as valuable benefits. Proximity to areas such as a ski resort, golf course or other recreational amenities may cost more, but may enhance value over time and provide for a more liquidated asset when it comes time to list your property.
3. Income Production
Buyers place differing degrees of emphasis on income potential, and income and expenses vary wildly between properties. Recreational or amenity-based buyers may be less concerned with agricultural production, and overall productivity depends on the attributes of any given property and the amount of irrigated ground, water resources and quality of forage. Some buyers desire to actually own cattle and bale their own hay, while many others lease out these functions to local and knowledgeable ranchers, all of which yield income.
Well maintained agricultural improvements and irrigated land are big draw for many ag ranch buyers. Existing cattle operations with working corrals, public land leases, perimeter fencing, and water resources are important factors in monitoring the production value of a potential purchase. Another important feature to consider is irrigated acreage. For example, in Colorado, only 3% of the state is designated irrigated land. Ultimately the right to use water has a significant impact on Colorado ranches for sale values, as irrigated land has a much higher per acre value than non-irrigated due to income generation, improved habitat for wildlife, and scarcity.
4. Sporting Features
Landowner tags, private fly-fishing access, and wildlife habitat are all contributing factors to land values. In the Rocky Mountain region, sporting quality can differ wildly between properties that seem similarly situated and this influences value. Some factors that impact sporting quality:
- Variety, quantity and quality of wildlife species
- Quality of habitat: land and water
- Control and access
- Availability of tags
- Adjacency to public land
Landowner tags can be a valuable source of income. Although programs vary by state, landowner programs were established to acknowledge the contribution of private lands to support wildlife and provide a form of compensation to landowners for resources used by wildlife. Permits or tags are typically available to landowners, family members and others designated by the landowner based on the acreage owned. An owner can greatly benefit from these tags, especially when a property is in a game management area where it is hard to draw permits.
When considering the value of a fly-fishing ranch, one must look at the natural water features and water flows on the property. Some things to take note of are proximity to headwaters of the stream or river, flow rates, and diversion structures that may reduce volume of water passing through the property. This can all impact the sporting quality and value of the land.
5. Conservation Value
Ranches for sale with strong conservation values can certainly enhance the value of a ranch. Protected natural amenities such as pristine scenery and wildlife help sustain property values and attract new investment. For instance, economic studies from the Headwaters Economics show that wilderness designation on adjoining public lands enhances nearby private property values.
In addition, there are tools like conservation easements that landowners frequently use to take advantage of the inherent conservation values. A conservation easement is a voluntary agreement where a landowner permanently restricts uses on the land in order to protect certain conservation values. Easements may provide a number of financial advantages for landowners including:
- Federal income tax breaks for a donation
- Colorado conservation easement tax credits
- Real estate ad valorem tax breaks
- Estate planning and family heritage preservation
- Land value enhancements due to adjacency to protected land
- Affordable farming & ranching land
Determining the most valuable components of a property is a critical step for ranch buyers and their ranch broker. Make sure you’ve found the right broker when you start your ultimate search for that prized piece of land. To help, refer to our blog series on the top characteristics to look for in a ranch broker.
For your convenience, here is a video recap: